A number of my clients have not yet reacted to the crashing of the financial world around them. They are not idiots, but San Antonio remains relatively healthy, and almost 2/3 of the companies we currently work with (about 104 at present) saw record years in 2008.
When I talk about inflation, most of them understand it as a broad economic problem. Treasury is printing vast amounts of paper to stimulate the economy. Eventually the currency will devalue to adjust for oversupply, and commodity prices will rise.
But the first inflation to hit your business will result from the financial market meltdown. Financial companies (banks, other lenders, REITs, insurance companies, investment firms) grew over the last 15 years from 6% to 25% of the total market capitalization on the NYSE. Now they are shrinking rapidly, and the impact to your pocket will be swift.
There is a more focused inflation, a cost shifting that applies to small business owners, and it has started already. Your operating expenses are about to rise dramatically, and you should be taking steps to preserve your margins today.
The first hits will come at insurance renewal time. Assuming you are still among the ever-shrinking group of small employers who provide health insurance, that inflationary spiral isn’t about to slow. The medical community has no ability to conserve costs. Providers proudly stick with a philosophy of “whatever it takes,” even though the “whatever” just happens to be the most lucrative choice for them.
With reductions in government payment programs, fewer insured employees and a higher demand for emergency and uncompensated care, do you really expect doctors and hospitals to respond by developing Lean production methods? No, their instinct will be to do as they always have before, to shift the burden to those who still have the money to pay.
In 2000 I predicted that we would see some form of national health insurance by 2011, and that small business owners would lead the campaign to get it passed. I still hold by that prediction.
Property and Casualty premiums have always risen in an inverse relationship with the stock markets. They have been falling for a number of years, as insurers competing for business, and supplemented their earnings with fat portfolio returns. The collapse of their investment income will quickly show up in substantial premium hikes.
Expect the same before the end of this year in Unemployment and Workers’ Compensation insurance. Despite Federal supplements, the insurance funds in each state are depleting fast, and premiums will rise suddenly and dramatically.
All forms of credit are becoming more expensive. Limits on company credit cards are falling, while the interest rates are rising. Spreads are increasing on lines of credit and equipment loans. Higher loan default rates and exploding FDIC insurance premiums are another way that the costs of bad operators are being foisted onto those who were more careful in their decision making.
As a small business owner, you have little choice in paying up for these increases. The interlocking interests of the banks, insurers and government have created a playing field where one requires that you do business with the other. Banks want you to have insurance as a condition of lending. Insurance companies have their profits guaranteed by government regulators, regardless of their investment ability. Other regulators control how the banks lend, and what they should require from you.
So, if you haven’t begun looking through your expenses to figure out where the money for increased insurance and financing costs is to be found, it’s time to start.
John:
I would agree to a point – but I think business insurance is an area that will remain open to negotiation – we saw our business property premiums increase only slightly at our recent renewal. Perhaps they are not fully feeling the pressure, yet.
Since insurers will be hurting just as badly, they want to convert coverage from their competitors, which means more aggressive pricing models – more coverage for the same amount or the same coverage for less money.
Analogy – how do you know a bank is in trouble right now? It offers the best rates on CDs, to suck in capital now to shore up its balance sheet while pushing higher expenses down the road.
Since any cash from a new account is better than no cash, insurers will compete on price to put money in the bank. And, of the three entities you discussed, insurers are the easiest to change, at least for property and casualty insurance.
Health insurance is more difficult to change, and in fact, you could argue it is more of a hassle to change it instead of your bank. But, for every business there is a point where no matter how badly you want it, the health insurance premium becomes unsustainable. Looking at the trend, a lot of businesses have already reached that point.
Unfortunately for insurers, they don’t have the direct power of the state to force you to buy.
Thoughts?
. The Center for Media Research has released a study by Vertical Response that shows just where many of these ‘Main Street’ players are going with their online dollars. The big winners: e-mail and social media. With only 3.8% of small business folks NOT planning on using e-mail marketing and with social media carrying the perception of being free (which they so rudely discover it is far from free) this should make some in the banner and search crowd a little wary.
http://www.onlineuniversalwork.com
very niec……………..